Owning a house is a dream come true for most middle-class people. However, home loan can make it happen easily. You pay a small percentage of the property’s price from your pocket as a down payment. The remaining amount is provided by your lender on the condition that you repay the amount over a fixed time period and with interest. All lenders divide the amount borrowed plus interest into monthly payments known as equated monthly installments or EMIs.
If you are also considering taking a home loan, the first thing you need to check is the lender’s housing loan eligibility criteria.
Importance of Checking Home Loan Eligibility
Before you apply for a home loan, don’t forget to check the lender’s terms for their home loan eligibility. If you do not fulfill their eligibility requirements, they will reject your loan application straight away. Since each loan application merits an enquiry on your credit report, it will reduce your credit score. Your credit score will be further harmed if the lender rejects your loan application. Applying for a loan, facing rejection, and looking for another loan will also waste time that may lose the best deal.
In short, applying for a loan that you are not eligible for leads to loan rejection, which wastes your time besides reducing your credit score. Here, you will determine how the home loan eligibility is calculated.
Factors Affecting Your Home Loan Eligibility
Housing loan eligibility conditions may differ from one lender to the other. However, these are a few common factors that affect them:
Age
Age is a crucial factor affecting your loan eligibility. Ideally, you should be at least 21 years of age at the time of loan application and less than 65 years (or retirement age) by the loan term-end.
Income and Profession
Both salaried and self-employed individuals can apply. A salaried employee with regular income and self-employed professionals with sufficient cash inflow can apply. However, check your lender’s minimum income requirement before applying for a home loan. Frequently changing your job or inconsistent income may negatively impact your eligibility.
Credit Score
Before approving your loan application, lenders will check your credit score to evaluate your credit history. A credit score is a 3-digit number calculated using parameters such as repayment habits, credit utilization, debt-to-income ratio, and other factors. If you have a credit score lower than 700, lenders may perceive you as a high-risk borrower and reject your loan application.
Property’s Condition
The lenders will check the condition of the property you are planning to buy. They will evaluate its price depending on its age, location, construction quality, and other conditions. Based on the property’s condition, the lenders will decide if it is worth investing in and accordingly reject or approve your loan application.
Debt-to-Income Ratio
The debt-to-income ratio is the percentage of your monthly income you pay towards your other financial obligations, such as other loan EMIs, credit card bills, insurance premiums, etc. The more financial obligations you have, the lesser your disposable income and the lower your repayment capacity. Therefore, your DTI ratio directly impacts your housing loan eligibility. Before you apply for a home loan, try to pay off your existing loans to reduce your DTI ratio.
Down Payment
The lender will not pay 100% for the property’s value. The borrowers need to pay a small percentage of the property’s price as a down payment. Many lenders check the eligibility when deciding the home loan amount. If the factors mentioned above are not met, they may require a higher down payment. Many lenders extend up to 90% of the home’s value as loan, if you meet the housing loan eligibility criteria.
Documents
Your documents play a crucial role in determining your loan eligibility. Lenders ask for a variety of home loan documents before approving your loan. These include your identity proof, residential proof, proof of income, and documents related to the property you want to purchase. The clearer and consistent your documents are, the higher will be your loan eligibility.
These are a few factors based on which your housing loan eligibility is determined. Keep them in mind while applying for a loan, as they will improve your chances of getting a home loan with easier terms and conditions.
